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4. If Inflation for year 1 is 6%, Inflation for year 2 is 7.25%, Inflation for year 3 is 7.75%, and Inflation for year 4
4. If Inflation for year 1 is 6%, Inflation for year 2 is 7.25%, Inflation for year 3 is 7.75%, and Inflation for year 4 and beyond is 8.25%, and the real risk-free rate of interest is 3.25%. The maturity risk premium for year 14 is 0.17%, and for year 27 is 1.19%. a) What is the interest rates for year 14 and 27? b) If the cut-off yield of government treasury bills is 5.5%, what is the default risk premium for year 14 and 27? c) What is the risk premium for year 14 and 27? Interpret your answers. (10 marks)
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